Monday, December 13, 2010

Morning Update/ Market Thread 12/13

Good Morning,

Yet another manic Monday HFT, POMO fueled, bond aversion, ramp job with equities higher, the dollar plummeting, bonds falling, oil reaching for $90 a barrel again, and gold at what was a formerly tinfoil $1,400 an ounce.

No economic data today, but it will be a relatively busy week with an FOMC meeting (announced tomorrow at 2:15 Eastern), Quadriple witching on Friday, PPI, CPI, Industrial Production, Housing Starts, Philly Fed, and the week will finish with “Leading Indicators” on Friday.

Here are the stories that have me heated from this weekend, the first is particularly galling and tells you everything you need to know about how the banks have subverted the markets, how there are no adults to police the market players, and thus the conclusion is that for this to happen those same players who collude and meet in secret have subverted the political process as well:

A Secretive Banking Elite Rules Trading in Derivatives

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

These people meet just before Opex each month to collude, price fix, and to rig the markets – yet since it is the big banks that are involved no police show up because this is the modern day super-mob. You can read more at the link to find examples of how this is costing American citizens more for things like heating oil.

Is there any wonder that those same banks saw record revenue over the past two years post bailout?
Wall Street Sees Record Revenue in ’09-10 Recovery From Bailout

Dec. 13 (Bloomberg) -- Wall Street’s biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever.

The five largest U.S. firms by investment-banking and trading revenue -- Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Morgan Stanley -- will likely have a better fourth quarter than the previous two periods, driven by equity underwriting and higher volume in stock and bond trading, according to data compiled by Bloomberg. Even if this quarter only matches the third, the banks’ revenue will top that of any year except 2009.

The surge has come after the five banks took a combined $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Brothers Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed’s purchases of fixed-income securities.

From the biggest losers to the biggest winners all on the backs of the American people who continue to get the $90 a barrel shaft.

The media will report that 70% of Americans favor banning Wall Street bonuses for some duration, but this is simply a distraction to the CRIMES that are taking place:

Banning Big Wall Street Bonuses Favored by 70% of Americans

Dec. 13 (Bloomberg) -- More than 70 percent of Americans say big bonuses should be banned this year at Wall Street firms that took taxpayer bailouts, a Bloomberg National Poll shows.

An additional one in six favors slapping a 50 percent tax on bonuses exceeding $400,000. Just 7 percent of U.S. adults say bonuses are an appropriate incentive reflecting Wall Street’s return to financial health.

A large majority also want to tax Wall Street profits to reduce the federal budget deficit. A levy on financial services firms is the top choice among more than a dozen deficit-cutting options presented to respondents.

With U.S. unemployment at 9.8 percent, resentment of bonuses and banking profits unites Americans across political, gender, age and income groups. Among Republicans, who generally are skeptical of business regulation, 76 percent support a government ban on big bonuses to bailout recipients, that’s higher than backing among Democrats or independents.

Damn bonuses! Are you distracted yet? Forget the bonuses, these gangsters are robbing us blind, saturating our nation with debt, colluding, price fixing, rigging markets, blackmailing politicians, and in general destroying any remaining notions of free enterprise.

Don’t worry about that pesky little $150 billion record deficit for November, the math can continue to grow forever, no worries, just buy the freakin’ dip.

Oh, and as you buy pay no mind to those pernicious bearish divergences that can be seen across all timeframes, which by the way, are all overbought – from 15 minutes all the way up to the monthly timeframe. When the stochastics are all positioned like that, as they are now, then the odds of a significant correction are very high and growing.

Below is a 6 month daily chart of the SPX showing what appears to be a rising wedge confining the rising price of wave 5 up. It also clearly shows a large bearish RSI divergence with lower RSI readings versus higher price:

The weekly and monthly charts also show this divergence which has been in place for quite some time – months. The other potentially serious divergence in place now is that the DOW Industrials have yet to make a new high above the November peak while the Transports and SPX have.

Bonds are beginning to show a positive divergence, meaning that the rise in rates may be reaching a turning point soon. The aversion to debt is completely justified, of course, in the face of out-of-control printing around the world and a bubble to end all bubbles in DEBT.

The VIX and other sentiment indicators like the put/call are reaching levels that indicate extreme investor complacency. The VIX is opening this morning at the bottom of its recent range, while the CBOE total put/call is at a low that I’ve never seen before, lower by far than at any point in the past 3 years at just .28:

Those types of extremes correlate very well to tops – have a Happy Holiday Season (take two Prozac, close your eyes, turn off your brain, keep buying stocks, and hurry to buy cheap stuff from China before the music stops)!